Could Sub-Prime Lending in California Turn Deadly?

In the last seven years sub-prime lending has become very popular in southern California.  With the high cost of housing in California was a temporary fix for many home buyers have a more affordable house payment.  This group of loans was made very attractive by offering options such as interest-only payments, lower initial start rates, and 100% financing.  For many consumers qualifying was not as tricky as a Fannie Mae product allowing the borrower to just state their income compared to the Fannie Mae conventional loan which requires full documentation providing pay-stubs hands W-2s. 

The downside to these loan products is that after two or three years they would become adjustable-rate loans, which is how the term exploding ARM loan came about.  The borrower was told in two or three years that it would be a will to refinance their loan and this is very true until the mark in Southern California stopped appreciating.  Many homeowners were now faced with payment increases of as much as $1000 per month.  On top of the lack of equity that homeowners now faced, the sub-prime market collapsed leaving only Fannie Mae type products on the market.  This left many homeowners without any options for refinancing their home.

One way that borrowers attempted to deal with this crisis was to attempt to renegotiate with their lender to keep the payment the same for another year or two even if they owed more on their home than it was currently worth with declining values.  Very few homeowners were successful with this approach even though many articles have been written as though this was a great option available to anyone.  Another common way that borrowers have attempted to deal with this exploding ARM crisis is to do a short sale.  This is when a seller places their home on the market for sale at market price and as the lender to set less than a full payoff on the mortgage, which would possibly do less damage to their credit than a foreclosure.  In many instances the homeowner was not successful in completing a short sale and renegotiating the payoff of their mortgage.

Because for many homeowners just walking away from a home and a mortgage that they couldn't afford was the only possible route, southern California now has more than its share of foreclosed homes.  Once the bank takes the home back it may be several months before it goes on the market with a realtor.  Then it may sit for several more months before the home sales and escrow closes.  In most cases electricity, water, and gas are turned off by the utility companies when the foreclosed homeowner no longer pays their bills or cancels the services.  In addition to the lack of utilities most of the banks are not keeping their properties up from a maintenance standpoint, but the most dangerous problem starts in a vacant home with a pool. 

 Pools are a very common amenity in Southern California homes and it only takes a couple weeks with no chlorine and no active filtration for a pool to become a green algae pit, the perfect breeding ground for mosquitoes.  For months now the health department has been telling everyone to make sure that all standing water is removed from their home.  Now it is very common to find bank owned properties with pools, hot tubs, and other standing water breeding mosquitoes.  While you may think that mosquitoes are only a nuisance, they are actually a transmitter of the deadly West Nile virus.

A mosquito becomes infected with West Nile by biting an infected bird and anyone with a compromised immune system has a very high risk of developing serious complications after being written by one of these infected mosquitoes.  About 1 in 150 people who are bitten develop serious complications.  While 80% of people in show no symptoms, the other 20% will have fevers, headaches, body aches, nausea, vomiting, swollen lymph glands, or a skin rash.  San Diego has had 16 cases reported to the department of health already and 102 dead birds have also been reported. The threat of the West Nile virus has now become such a significant threat to public health that officials are having any reported sources of breeding mosquitoes treated to prevent an epidemic of West Nile virus.  With no concern for public safety or the vast expense put on the backs of taxpayers the banks are allowing their foreclosed homes to become breeding grounds for this deadly disease. 

Unlike the firestorm of 2007 in California which has had a dramatic and visual impact on the state.  This type of problem is not visible to the general public and the magnitude of this deadly disease will not be apparent until the number of infected people starts hitting the news.  New laws at the state level need to go into effect prevent banks from allowing pools to remain un-maintained end becoming a breeding ground for the West Nile virus.  Legal action needs to be taken to save lives even when people's homes could not be saved from foreclosure.  West Nile virus has not yet made the front page, but if this continues it will.